As global sharemarkets experience a euphoric 10-day rally, investors are questioning whether recent rises constitute just another bear market bounce or the beginning of a sustained recovery.
Wall Street's 18pc rally in the past 10 days is its biggest 10-day jump since 1938, and the ASX 200 is up 14.7pc since March 10.
Yesterday the sharemarket recoiled from early highs to close less than 1pc firmer after Wall Street soared 7pc.
US markets had been buoyed by the Treasury's $US1 trillion ($1.4 trillion) package to rescue embattled US banks.
Despite bleak economic news, however, no one wants to miss out on the turn in the market, which inevitably precedes a pick-up in activity.
Other signs of recent confidence include a switch out of "defensive" stocks such as Woolworths and Telstra into cyclical companies such as Harvey Norman and Boral.
And the Australian dollar - also regarded as a risk asset - is pushing through US70c for the first time since January.
The bears, however, are reluctant to accept listed companies have seen the worst of the most severe slump in 50 years.
The managing director of White Funds Management, Angus Gluskie, falls into the negative camp.
He said that although the US rescue plan boosted confidence, deterioration in growth, employment and profits overshadowed its positive impact.
"At this stage it's a rally that's based on few facts and a lot of sentiment. Traders felt that the market had been oversold and they were looking for reasons to buy it up, and the promise of the latest rescue plan for the financial sector has provided those reasons," he said.
On the other hand, the head of Australian Unity Investments, David Bryant, believes the sharemarket hit bottom when it sank to 3145 points earlier this month.
As each day passed without a meltdown, Mr Bryant said investors were less concerned about volatility and could concentrate on assessing the more predictable economic conditions.
"We've just got a good old-fashioned recession now, and you can make your own judgment about unemployment, demand and some of those other issues," he said.
But some of the most successful players say the economic conditions are precisely the problem.
BlackRock Inc's global macro fund, the second-best performing hedge fund for investors during two years of economic uncertainty, is much more bearish.
The manager of its Asset Allocation Alpha Fund, David Hudson, is betting Australian shares have further to fall and is buying bonds instead.
"The risk is that the economic recovery disappoints in the second half and that equity markets need to revisit their lows in the next few months and maybe go through them," he told Bloomberg.
Citigroup's market strategist, Graham Harman, said the market was likely to fall further about the middle of the year, after a reporting season in August that would be even uglier than the latest one.
"We've got to get through the financial crisis and then we've got to get through the economic crisis," he said.
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